Making the Most of Your HOA or Condo Dollars

It’s important to consider any HOA or condo fees you’ll have to pay to determine if you can afford the monthly fees, along with mortgage payments.

Whether you’re looking to buy a newly built condominium or residence located within a homeowner’s association, comparing fees, amenities and rules should be on your list of topics to research before you decide on your preferred community.

Many buyers assume the fees are similar from one community to the next and that most associations have comparable amenities and rules.

The truth is that there can be a wide variance between what you can and cannot do, what features and services are covered and the fees themselves.

“If you’re financing your home, the HOA fees factor into affordability,” says Karen Kitzmiller, a real estate broker with Century 21 Real Estate Consultants in Charlotte, N.C. “Some places charge $400 or $500 a month because they include cable, water and sewer services, which will be part of your monthly expenses that must be included when the lender qualifies you for a loan.”

Information please: how to gather association details

Buyers have two main sources of information when they want to compare communities: the salesperson representing the builder and their own Realtor, if they have one.

“Most builders, particularly large ones, have a community information sheet that includes items like proposed tax rates and homeowners association fees,” says Alex Rezende, a Realtor and owner of Re/Max Houston New Home Team in Houston, Texas. “The information sheet should spell out what the fees cover.”

Condo association dues typically cover exterior maintenance and the roof, while HOA fees cover the common grounds and any amenities.

“It’s important to check to see if the fees pay for Internet services and cable TV and any other utilities since that means you aren’t paying for those items on top of your HOA fee,” says Corinne Smith, a broker with Coldwell Banker Advantage in Fayetteville, N.C.

Rezende says you may actually be saving money in a community that seems to have higher fees if those fees cover things like a fitness center and your utilities.

In a condo, your fees also cover a master insurance policy, so your homeowners insurance bill will typically be lower than one for a single family home.

Evaluate fees and what they include for an apples-to-apples comparison of communities.

Association rules and why they matter

Association rules are established by developers of new planned communities as part of the planning process, says Kitzmiller. Buyers need to sign documents that say they have read the covenants and agree to abide by them.

“It’s extremely important for a Realtor to find out all the rules of different communities in order to share that information with their clients,” says Smith. “I heard of one person who bought in a community without checking to see if he would be able to have his Doberman there. His choice was to give up his pet or move out of the community, but I think his Realtor should have known in advance to check on pet rules.”

Buyers can request a copy of condo or HOA documents before they make a deposit on a home, says Smith.

“If you have a specific need that’s important to you, such as having lots of pets or wanting to build things in your backyard, you need to check out the rules and compare them from one community to another,” says Rezende. “One rule could make the difference between choosing one community or another.”

Rezende recommends talking to the salesperson on site and people who have already moved into a community to ask about whether an HOA has strict rule enforcement or not, especially if you are worried about feeling confined by rules.

“Some of the rules that you should look at carefully apply to pets, boats and campers,” says Smith. “I know some buyers have run into conflicts because they own an RV and then find out they can’t park it anywhere in their community. If you have a home-based business you need to make sure that’s allowed, too.”

Future adjustments to fees and rules

Once a community is complete, the developer and builders typically turn over management of the homeowner association to the homeowners, who can decide if they want to continue to hire a management company. Kitzmiller says this generally occurs at a specified time, such as when two-thirds or four-fifths of the homes have been sold or the community is complete. The homeowners can also vote on rules changes and special assessments.

“Sometimes the builders know ahead of time that the assessment will change in the future, so you should always ask about potential fees,” says Smith. “In one community, I know that the current annual HOA fee of $350 will go up to $500 annually in 2018 because new amenities will be in place then.”

HOA and condo fees are collected to pay for services and amenities and to build a reserve fund for future expenses. Kitzmiller says some new communities charge a capital contribution fee to buyers to begin establishing a reserve fund.

“It’s important to review the financial statements of an association to know that a robust reserve fund is in place,” says Kitzmiller. “If not, it’s possible that a special assessment will need to be charged in the future.”

While some people balk at paying HOA fees, it’s important to recognize the value associated with living in a community with rules to maintain home values and with appealing amenities.

When you are looking for a newly built home, it’s important to focus on the community itself and the homeowners association, not just the house you want to build,” says Rezende. “If you’re not happy with the community, eventually you won’t be happy with the home, either.”
Michele Lerner is an award-winning freelance writer, editor and author who has been writing about real estate, personal finance and business topics for more than two decades. You can find her on Google+.

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